American Capital Ltd.
) appreciated 3.38% since it announced the repurchase of its
common stock worth $175.5 million on Thursday. Generally,
companies conduct buyback programs more aggressively during
market pullbacks, to benefit from the discount on shares. This in
turn supports the price of the stock and grants security for
long-term investors during bad times.
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The company repurchased a total of 13.4 million shares of its
common stock at an average price of $13.11 per share. Number of
shares repurchased represent 4.6% of the company's outstanding
shares of common stock as of Jun 30, 2013.
Since the initiation of the new capital deployment program in Sep
2011, American Capital repurchased 83.8 million shares of its
common stock for $923.9 million, including the current buyback.
The average purchase price came in at $11.02 per share.
As of Jun 30, 2013, share repurchases improved the company's net
asset value (NAV) per share by $1.40, bringing the total to
$19.28. However, in the absence of this share buyback activity,
American Capital would have been required to earn an additional
$405 million during the past eight quarters since Jun 2011 in
order to record the current level of NAV per share.
The company is progressing with its capital deployment policy
based on the repurchase program it has adopted. According to the
plan, American Capital puts aside a certain amount for either
stock repurchases or dividend payments, on a quarterly basis. The
quarterly amount depends on the company's cumulative net cash
from operating activities in the prior quarter.
Further, since the beginning of 2012, cash and cash equivalents
in hand, cumulative repurchases or dividends, debt position,
investment plans and operational issues also help determine the
quarterly amount. Lastly, the current trading price of American
Capital's common stock, its financial liquidity and the ongoing
economic conditions are also taken into consideration.
As per the company's strategy, if the price of American Capital's
common stock trade is at a discount to the net asset value of
shares, the company will opt for a share repurchase. On the other
hand, if the price trades at a premium, the company will prefer
The authorization of the new share buyback program and resumption
of dividend payments raise our hopes for an enhanced investor
confidence in the company. During second-quarter 2013, American
Capital's asset coverage ratio improved substantially to 1,009%
from 956% in the prior quarter.
Alongside, the company repaid securitized debt of $49 million and
increased investments by $50 million while strengthening its
balance sheet. Moreover, the company recorded $150 million of
cash proceeds from realizations of portfolio investments during
American Capital's successful debt restructuring furnished it
with sufficient operating flexibility. In addition, the company
continues to de-risk its balance sheet through a number of
initiatives including repayment of debt.
Moreover, these steps augment the company's capital position and
reduce interest expenses. Though the improved portfolio
performance is expected to continue with the economic recovery,
we believe the low interest-rate environment and global cues
might act as headwinds in the upcoming quarters.
American Capital currently carries a Zacks Rank #3 (Hold). Some
companies in the same sector that are worth considering include
Hercules Technology Growth Capital, Inc.
MCG Capital Corp.
Medallion Financial Corp.
). All these three carry a Zacks Rank #2 (Buy).